Child-Minding Expenses

7.66. Other illustrations of expenses which, while not expenses of deriving income, are peculiarly prerequisites to the earning of income may be found in relation to child-minding. There are circumstances where a parent in order to be free to go to work must arrange for the minding of children.

7.67. Under the present law child-minding expenses as such are not deductible. Section 82D involves a related concession. It allows a deduction of $364 when, during the year of income, a housekeeper is engaged wholly in keeping house for a taxpayer and in caring for a dependant of the taxpayer where that dependant is (i) a child of the taxpayer, under 16 years of age; or (ii) any other child under 16, or an invalid relative (narrowly defined), for whom a dependant deduction can be claimed; or (iii) a spouse who is an invalid. A deduction is allowed to a married taxpayer only where the

  ― 71 ―
housekeeper is engaged in caring for a spouse in receipt of the invalid pension, except in special circumstances. The Commissioner has a discretionary power to determine these special circumstances. If, for example, a wife has deserted her husband and the husband has engaged a housekeeper who keeps house and also cares for his dependent children, the circumstances will be sufficient for the Commissioner to exercise his discretion and allow the deduction. On the other hand, where a husband and wife both work and engage a full-time housekeeper to care for their dependent children, the Commissioner has taken the view that there are not sufficient grounds to justify a deduction for the housekeeper. It thus appears that while the section may incidentally give a concession in a case where child-minding is a prerequisite to the earning of income, it is not specifically directed to that situation.

7.68. Some countries have provisions that are so directed. For instance, child-minding expenses are deductible in the United States under certain conditions. The main requirement is that the child-minding expenses are necessary for the taxpayer to be employed or to seek employment. The child must be a dependant under 15 years of age for whom the taxpayer is entitled to claim a dependency exemption or, if the dependant is over that age, he must be physically or mentally disabled. The deduction is available to a taxpayer who is raising a child alone, for whatever reason. It is also available to married couples where both are gainfully employed or seeking such employment or where one spouse is disabled. The maximum deduction is $400 per month; however, for services provided outside the home—in a creche, for example— the maximum is $200 per month for one child, $300 for two children, and $400 for three or more children. The deduction is reduced by 50 cents for each dollar of the taxpayer's gross income in excess of $18,000. Expenses are not deductible if paid to a relation of the taxpayer.

7.69. In the Committee's view there should be some concession in the law, not because of any policy of encouraging persons with responsibilities to children to seek employment, but in order that those who are employed, whether through choice or necessity, might be assisted in meeting the costs of discharging the responsibilities of caring for children when the services of others must be employed. The need for a concession will be the less if the government provides child-minding facilities directly by way of free or subsidised creches and the like. It cannot be anticipated, however, that such facilities will ever be universally available. The need will be the less, too, if generous child-endowment grants are made. But such grants will favour all parents and not provide specially for those who must incur the expenses of child-minding.

7.70. The Committee recommends that the concession be available to a married couple both of whom are working, to a married couple where one works and the other is an invalid, and to the head of a one-parent household who works. A number of other questions arise as to the scope of the concession. These relate to the nature of a qualifying expense, the amount of expense that may be recognised in respect of each child, the age at which the concession ceases, the scaling down of the expense where the earning of income is on a part-time basis or extends to only part of the year, and the protection of the Revenue when the expense involves payment to a relative.

7.71. Where the child-minding is incidental to the provision of education, there is no need to give a concession if there is an appropriate concession available for expenses of education. The question then arises as to the correlation between the child-minding expense concession and the education expense concession. The Committee has, in paragraphs 12.32–12.34, proposed that the present concession for education expenses in respect of dependants be related only to a taxpayer's expenses by way of fees for

  ― 72 ―
tuition, be limited by a ceiling of $600 in respect of each dependant, and involve a tax rebate rather than a deduction from income. In the Committee's view the child-minding expense concession ought to be framed as an extension of the education expense concession. Its function is to give a tax concession in respect of the expenses of the pre-school and out-of-school care of a child which a taxpayer is by his employment precluded from providing himself.

7.72. If the child-minding expense concession is framed as an extension of the education expense concession, it follows that the limit of $600 will cover both education and child-minding expenses in respect of the same child where both kinds of expenses are incurred.

7.73. The age at which a child ceases to attract the concession might be set at 14 years. The scaling down will need examination: where a parent is employed for only part of the year, some scaling down would seem to be called for. Where the person to whom the payment is made is a relative, protection of the Revenue will require provisions of the kind at present applied generally to payments between associated persons (section 65).

7.74. In the Committee's view, in line with its thinking on the education expense concession, the function of the concession proposed should be seen as assistance in meeting special costs of discharging parental responsibilities. The concession should seek to give similar assistance to all taxpayers concerned, whatever their position on the income scale. The expense should therefore be the subject of a rebate of tax at a rate which, like the education rebate, might be set at 40 per cent. This means that somebody incurring $600 in child-minding expenses which qualify for concessional treatment will save $240 in tax.

7.75. There will be need of some provision to determine the correlation between the child-minding concession and the related concession, discussed in paragraph 7.67, provided by section 82D in the case of a housekeeper. An appropriate provision would require that where that concession is given in circumstances involving the care of a child, it be available only as an alternative to the child-minding concession.